I spoke to Amitaabh Malhotra, CMO, Omnyway, about the success of WeChat Pay and the future of social payments.

Why has the WeChat Pay model, blending social media and financial services, been adopted so widely in China, yet hasn’t taken off here?

There are actually multiple reasons for this.

China’s closed and heavily policed internet has forced its online users to migrate towards home grown software companies with government-sanctioned communications and engagement methods. It has kept global players like Google, Facebook and Amazon at bay. Tencent – parent of WeChat Pay – has been a major beneficiary of this, and used it to expand into multiple different software services verticals such as eCommerce, gaming, media, wealth management, insurance, ride hailing, booking, bills and payments, in a more or less monopolistic manner.

The company has been smart about seamlessly integrating all these services into a single app interface, ensuring a very high user engagement – almost 3 hours a day – as well as utility. Not only did WeChat expand its now famous and ridiculously successful red envelope program into a full fledged payment system with real merchants, but it also stuck up key partnerships with the merchants to promote and drive traffic – essentially making the platform a go-to for any merchant looking to expand its user base. Currently WeChat has the status of a super app, and functions almost at the level of what popular mobile operating systems do in other parts of the world, with its own captive users, apps and merchants.

This has been hard for companies outside of China to replicate. The various parts of the mobile services ecosystem are essentially broken into silos in all other parts of the world, with dominant players in each silo doing their best to maintain their turf. In China, users don’t have email IDs, but have WeChat IDs instead. Business don’t have websites, but have WeChat Official Accounts instead. A lot of these Chinese users and businesses skipped the traditional internet 1.0 paradigms. In the rest of the world, apps and websites are created on a cross-OS basis, not a cross social media platform basis. This definitely restricts the consistency of experience and feature breadth that any of the non-Chinese social medial platforms can offer.

There was also a lack of advanced digital and money movement/payment capabilities in China when WeChat Pay was started, and allowed WeChat Pay to essentially fill in large gaps in user experiences, more or less defining it for the country. This has not been the case in markets with more developed digital payment capabilities, and often payment only initiatives have seen a lack of adoption due to the lack of incentive for users to change.

How can western retailers learn from Chinese social payment trends?

It is key to understand that a payment-only initiative will gather little success. As has been proven over and over in other real world implementations of successful digital/mobile payment initiatives, the key factor of success lies in the overall user experience and engagement at various stages – before a transaction, during a transaction and after a transaction. In the case of social commerce as implemented by WeChat Pay, they have ensured a better user experience at all of these stages.

Before the transaction, the shopper stays within a unified social and discovery platform. They engage with merchants, they add their bank accounts, they discover offers, they communicate with peers – all on the WeChat interface.

During the transaction, the buying experience is simple and consistent. All the user has to do is scan a QR code, with no additional special features or capabilities required on their mobile devices. Once scanned, the transaction goes through in one tap. In addition, the merchant is incentivised to promote WeChat Pay as the transaction fee is negligible, and user can easily pick from almost any financial account in China to pay

After the transaction, the shopper gets digital receipts, as well as any social promotions. Similarly the merchant gets the funds almost immediately or within the same day

Some of the key technologies in play include the connectivity and money movement capabilities available in China for the instant movement of funds between bank accounts at a very low fee. In addition the capabilities to leverage the mobile devices to effectively identify and authenticate users and merchants is used throughout the transaction to ensure that fraud is minimized, allowing for the transaction fees to be kept at a minimum. The use of static and dynamic QR codes also adds to the simplicity of implementation, removing the dependence on costly point-of-sale hardware or upgrades.

Chinese consumers seem to be more willing to share their personal data than Western consumers. Is there a problem with messaging around personal data use in the west? How can financial services in the west turn this around?

Chinese consumers are about as ready to share personal data as are most other users across the world. As is evident in the case of Google and Facebook, users of these platforms regularly share vast amounts of personal information and data in order to avail the services that these platforms then offer for free, mostly in return for targeted advertising revenue.

The difference we see in the case of WeChat is that WeChat offers a wide variety of very effective services, for which the merchants or users actually pay. The WeChat platform does not depend on advertising as a sole revenue source and is often reluctant to share the user’s data with 3rd party marketers. This inherently allows its users to develop a trust in the platform. In fact, the concept of social credit scores is now being implemented in China, because of the trust that users have been able to place in these platforms, and share data with them.

Adopting the Chinese social payments model could decide who succeeds in the battle between the banks and the tech giants for personalized financial services. Who do you think will come out on top?

In the case of China, the role of financial institutions is currently restricted to being the licenses entity for the handling of money and financial transactions, and this role is strongly regulated by the Chinese government, allowing the more user services and software companies such as Tencent to offer more personalized financial services. It has been proven in most markets that 3rd party solution providers have far exceeded traditional banks in being able to offer a suite of services without the regulatory overhead of banking institutions. It is clear that going forward that this will remain the norm. There may be some exceptions in markets that have more progressive financial regulatory environments, where the banks may be allowed to compete, but the playing field is not in favor of the banks for now.

In 2020, instant payments look set to continue their current trajectory to become the biggest trend in payments. While these schemes already offer numerous benefits to corporates, leveraging innovations such as APIs and request to pay will go some way to unlocking their full potential, argues Michael Knetsch